Peer-to-peer or social lending helps credible lenders and borrowers find one another
without involving a traditional financial institution. In the auction process, lenders who
offer the lowest interest rate "win" borrower loans.
How It Works
- Peer-to-peer lending promotes social goals, removes overhead and reduces the complexity of
traditional bank lending models.
- Peer-to-peer lending may also provide both better returns and interest rates. Participants directly
control their own funds, unlike traditional models that pool funds and remove individuals from
decision-making.
How it Began
Peer-to-peer lending grew out of the microfinance movement founded by Professor Muhammad Yunus. In 1976, he launched an action research project focused on designing a credit delivery system to provide banking services targeted at the rural poor to help them escape poverty and launch successful small
businesses.
Grameen Bank has since lent more than $8 billion to more than 8 million borrowers. Muhammad Yunus and the Grameen Bank were awarded the Nobel Peace Prize in 2006.